Phantom is the main digital wallet for the Solana blockchain. As a rival to Ethereum, Solana offers faster transaction speeds and cheaper transfer fees.
Phantom is a hot wallet with no custody:
- Hot wallets are online wallets that are connected to the internet as opposed to cold wallets that are offline. For example, if you write your wallet’s seed phrase on a piece of paper, it means you’ve created a cold wallet.
- software wallets acts as another app on your computer/smartphone. In the case of Phantom, it’s available as an app on both the App Store and Google Play. For desktops and laptops, it is available as a Web3 browser extension that supports Chrome, Brave, Firefox, and Edge.
- Purses without custody give you ownership of your private key. In contrast, cryptocurrency exchanges are vaults where the company (Binance, Kraken) keeps your private key for you.
All cryptocurrency transactions are unlocked with private keys. Each private key is matched to a public key it generates. When a transaction is made with a public key, your private key verifies it as valid.
Phantom wallet as Solana’s Web3 gateway
Just as MetaMask is the most popular wallet for Ethereum, Phantom is the Solana equivalent. Thanks to its power, Solana has an ecosystem of hundreds of dApps: NFT marketplaces, play-to-earn games, lending, lending, and decentralized exchanges (DEXs).
For example, when you visit Raydium dApp, you will get the option to connect wallet either in the top right or in the middle of the screen.
Assuming the Phantom Wallet is already installed in the browser, the password prompt will appear as a popup.
This is just the app password, not the private key. After clicking “Unlock” another pop-up window will appear to confirm the connection of the wallet to the Raydium dApp.
After clicking “Connect” to confirm, a small confirmation window will appear that the connection was successful. Then you can use the Raydium dApp. It is quite similar to Ethereum’s Uniswap DEX.
Not only can you trade tokens on Raydium, you can also deposit tokens into liquidity pools. For example, a SOL/USDC token pair is a liquidity pool for traders looking to trade either SOL (Solana’s native currency) or USDC stablecoin.
In return for providing liquidity in such token pair pools, users will receive SOL tokens as a reward. This principle is at the core of decentralized finance, whether it’s DEXs like Raydium or lending dApps like Solend. Premium yields vary depending on market conditions and demand. This is what they usually look like on Solend.
In order to obtain a loan, of course, collateral must be deposited. This is expressed through the Liquidation-to-Value (LTV) metric, which represents the percentage of collateral required for a borrowed token. When the value of the LTV ratio reaches a certain threshold, the borrower must liquidate its collateral before repaying the loan.
Such a process is analogous to banking, but in the blockchain world everything is more efficient and instantaneous because smart contracts do all the work automatically.
However, before you can connect to a Solana dApp, you first have a funded phantom wallet.
How do I fund a phantom wallet?
There are two ways to fund a phantom wallet. One option is to transfer crypto funds directly from another wallet or crypto exchange. For example, if you were to exchange USDC for SOL on Binance, you could send those SOL tokens directly to the phantom wallet.
The first step is to click on the Phantom extension icon. A window appears with the option of depositing tokens. After clicking Deposit, select the token Solana (SOL) which is listed first.
After making your selection, you will receive your QR code for the transfer here. Alternatively, you can copy and paste the address into the recipient’s address field at your exchange.
But what if you want to fund your phantom wallet with stablecoins instead of SOL tokens? Finally, SOL tokens can lose value in a volatile market, while stablecoins…remain stable. In this case, the process requires an additional step.
The problem is that both USDC and USDT stablecoins are commonly traded as ERC-20 tokens. Because that is the smart contract format for Ethereum, the largest DeFi network. So the exchange you are transferring USDC to Phantom from would need to support Solana SPL.
This is what it would look like on the FTX exchange.
Binance has a similar support that would need to be selected. Otherwise the transaction fails. As an alternative to these two funding methods, Phantom offers a built-in option to directly purchase three types of tokens (SOL, USDC, USDT) through three methods.
If you already have some of these accounts, this would be the most convenient way to fund a phantom wallet.
phantom stakeout
If your phantom wallet is funded with SOL tokens, it is possible to use them to earn staking rewards. Finally, Solana is a proof-of-stake network that relies on economic staking to secure the network and process transactions.
From your wallet main menu, click on the bottom dollar icon, SOL tokens, and then click “Start earning SOL”.
After some loading time, Phantom will list available validators to choose from. Typically they charge a 10% fee on staking rewards.
That’s because most people in the Solana ecosystem choose to choose validators as their delegators. The reason is that when adding new blocks, Solana validators have to pay up to 1.1 SOL per day for voting purposes.
Validators, in turn, need a fee to cover their losses. After delegating the validators and selecting the SOL amount, the tokens will be locked for a period of time. That is, they cannot be moved or spent in dApps.
You can use this calculator to determine the SOL staking reward for any amount and a specific freeze period. On average, you should expect an annual percentage rate (APR) of 5-6%, which is more than you’ll get from depositing into a thrift account.
Disclaimer for the series:
This series article is for general guidance and information only for beginners participating in cryptocurrencies and DeFi. Nothing in this article should be construed as legal, business, investment or tax advice. Consult your advisors for all legal, business, investment and tax implications and advice. The Defiant is not liable for lost funds. Please use your best judgment and exercise due diligence before interacting with Smart Contracts.
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